Their simple iPhone photo shooting-and-sharing app is growing about as fast as we've seen anything grow: Less than a month after launching, it's already approaching 500,000 users, and could reach the milestone within a week. It is currently Apple's featured iPhone "app of the week" in iTunes, which has accelerated its growth. And the people who use it seem to love it: Our Twitter stream is full of Instagram shots -- especially from tech-yuppie-types.

But today, they've got problems. To keep the site up, they have to battle the crushing weight of their growth on Instagram's infrastructure. (You can see a few complaints on Twitter about downtime from earlier.)

These are "high-class problems," as Systrom jokes during our phone conversation, because they mean that they've built something popular. But they're also stressful, and never fun. So that's taking first priority today.

But provided they can stay ahead of scaling challenges, continue to add more users, and eventually generate some revenue, the Instagram guys could have something special and valuable on their hands.

What is Instagram, anyway?

Here's a typical Instagram photo: Food, run through an optical filter, with an inside-joke caption.

An iPhone app for taking pictures and applying visual filters to them, making the photos look retro-cool. These filters are especially popular, because they can make even mundane iPhone photos look more interesting, or at least wackier.

A way to easily post your picture to a bunch of sites at the same time, such as Twitter, Flickr, Facebook, and Tumblr. Most people have to do this manually, currently, using different apps.

A social network of photos, where you can quickly and simply see what your friends are doing through colorful photos, and add comments. You can quickly import your Facebook and Twitter friendships, and people from your phone book.

What makes Instagram special -- and why, we think, so many people are trying it out, and many seem to be staying -- is the way it merges these three functions into a very simple, attractive iPhone app. This isn't complicated stuff, after all -- Tumblr, TwitPic, or Flickr could have done this eons ago. But Instagram works quickly and doesn't feel weighed down with a bunch of useless features or bad UI. This attention to speed, cleanliness, and detail matters, even if it's a subjective trait. (More here from Faruk Ates on "the addictive allure of Instagram.")

Where did it come from?

Instagram founders Kevin Systrom and Mike Krieger
Instagram grew out of Burbn, a mobile web app that Systrom worked on earlier this year.

Way before that, Systrom was a summer intern at Odeo, the company that morphed into Twitter. After graduating from Stanford in 2006, he got a job at Google, first working on Gmail, and then in the corporate development/M&A department. It wasn't an exciting time for M&A when Systrom was there -- 2008, when the economy was nosediving -- but he spent enough time talking to startup entrepreneurs that he realized that's what he should be working on.

After working at NextStop for about a year -- a social travel site that Facebook acquired -- he set off to start Burbn, which quickly raised $500,000 in seed funding from Andreessen Horowitz and Baseline Ventures.

Burbn was broader in focus, and had more to do with location and "checking in" than photos. But people loved posting photos in Burbn -- it "made Burbn magical," Systrom says -- so he decided to focus on refining the photo experience, and made that the center of the new iPhone app. It took about 8 weeks for Systrom and Krieger to do that, and about four weeks ago, they launched Instagram.

What's next?

Since then, it's been all about growth. The guys thought they might get 5,000 users in the first week, but quickly found themselves serving tens and now hundreds of thousands of users. (Systrom says Instagram got about 300,000 users about three weeks after launch, and that growth has recently accelerated. He wouldn't offer an update, but we anticipate it could hit 500,000 users late this week or early next week, if it hasn't already.)

So now, obviously, scaling is the biggest issue. Instagram is still two full-time employees, though a third, a community manager, is on board as a contractor, and Systrom says the company wants to hire engineers quickly.

After that, deliberate feature development, and eventually, some sort of revenue plan.

The good news is that Instagram has lots of opportunities for making money, such as charging for premium features within the app -- pay a buck for a pack of new filters, for example -- or other add-ons. Or even advertising. But Systrom says that it makes more sense to wait a while before trying to make any money from Instagram. Business models "matter when you're at a scale of millions of users," he says. So give it a few months!

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The tricky part, as other so-called "freemium" sites have experienced over the years, will be implementing those business plans in a way that doesn't scare away their core audience. And in a way that keeps their free product useful enough, while also making people want to upgrade to the paid product.

Just a Silicon Valley fad?

The hardest thing for Systrom and Instagram to do will be to keep growing and to retain users. The last thing anyone wants to invest in is another Chatroulette-like flash in the pan, and the nature of the iPhone app ecosystem is especially prone to fads.

For example, in theory, Facebook could steal some of their thunder overnight by making the photo experience in the Facebook iPhone app a little better, adding filters, etc. But you can't worry about that sort of stuff too much when you're working on a young startup -- you just need to push ahead. In Instagram's case, its quickness, creativity, attitude, and network effects should be helpful.

One good sign is that Instagram seems to be getting out of Silicon Valley.

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Systrom didn't have any recent stats, but he recalled that during one of the company's first weeks, only about 4% of the photos uploaded were taken in the Bay Area, and about another 4% in New York. He cites "enormous" activity in Japan and Asia in general, and heavy usage in places like Russia and Sweden. "There's tons of people who don't even speak English picking up the app and using it every day."

And that's important, because if Instagram is ever going to make it, it can't just be a Valley thing. But if it can keep growing and keep branching out, it could become this decade's equivalent of Flickr, tailored for mobile devices. And that could be big.